UK tax burden rising at fastest rate in Europe

Wednesday 11 October 2006 22:37 BST

Burden: Gordon Brown's tax policies have led to the fastest rising tax burden in Europe

Middle earners in Britain were hit last year by the biggest tax increases in the European Union, according to a devastating international study. - the proportion of the nation's income taken by the Government in tax - shot up by 1.2 per cent to 37.2 per cent, it showed.

That amounts to an extra tax grab of £450 billion - with much of it coming from the pockets of hard-working families.

While headline tax rates have remained the same, middle-class families are increasingly being dragged in to paying the top rate of income tax, stamp duty and inheritance tax.

The number of people paying the top-rate income tax of 40p in the pound has rocketed under Labour from two million in 1997 to 3.3 million now.

The rise has been fuelled by the Treasury's insistence on keeping the threshold at which people pay top-rate tax in line with prices, rather than salaries which generally rise faster.

As a result, millions of teachers, police officers and senior nurses have found that their pay rises have taken them past the top rate threshold.

So-called 'fiscal drag' helps explain why 12 per cent of income taxpayers provide 60 per cent of the total tax revenue.

Stamp duty receipts, meanwhile, have tripled since the year Labour came to power, reaching over £12bn a year. Inheritance tax has nearly doubled in the same period, rising to £3.3bn.

Official figures suggest household disposable income is falling at its sharpest rate since 2003 as a result of the extra tax take.

Of the 24 major countries considered in the OECD study, only the United States and Iceland saw bigger increases in the weight of taxation last year. But the overall burden in both of those economies remains significantly lower than here.

The tax burden in Germany now accounts account for only 34.7 per cent of gross domestic product, a full 1.5 per cent less than in Britain.

Opposition parties seized on the findings as evidence that the Chancellor is damaging the economy in order to plough on with increasingly unaffordable levels of public spending.

For the Tories, Shadow Chancellor George Osborne said: 'Not only have taxes gone up faster than in almost all other OECD countries, but this report shows that Gordon Brown is taxing all the wrong things.

'Taxes on pollution have got less important, while taxes on incomes and profits have gone up massively. This is exactly the wrong response to the challenges of climate change and global competition.'

Business leaders warned this week that firms are also being hit by Labour's convoluted and burdensome tax regime.

The Confederation of British Industry said companies have been hit by £59 billion of additional taxes since Labour took power in 1997.

Overall, taxes are expected to rise by another £19 billion this year, according to the Institute for Fiscal Studies.

Economist Howard Archer, of forecaster Global Insight, said: 'The Chancellor has been increasing tax by stealth. More and more people are moving into higher tax bands.

'It is one of the burdens on consumers. If you look at real disposable income it has hardly been growing at all and in fact it fell in the last quarter.'

Given the scale of the Government's budget deficit, the toll of taxation could be set to rise further, he claimed.

'Brown is still in a fairly precarious position over the medium term on the public finances. The next move in taxes is more likely to be up than down,' he said.

The Treasury brushed off the report, saying increases in Britain's tax burden were down to stronger economic growth, which has lifted Government revenues.

The ratio of taxes to gross domestic product remains below its peak of 39.1 per cent under the Tories in 1982, it said.

A spokesman said: 'These figures are a result of the economic cycle, not tax decisions.

'During the 1980s the tax burden was highest at the peak of the economic boom-bust cycle, and only fell during the deep recessions of the early 1990s.

'As recognised by the OECD today, higher tax ratios are a result of stronger economic growth in the UK economy, not tax increases.

'Thanks to reforms introduced by this Government, the UK economy continues to experience an unprecedented period of growth and stability, and the OECD recently described the UK as "a paragon of stability".

The OECD report came as the Chancellor was also accused of penalising childless workers to help fund tax breaks for lone parents and poorer couples with children.

Overall, a single person in work is £18 a week worse off than when Labour came into power ten years ago, according to Britain's most respected economic forecaster.

The Institute for Fiscal Studies says so-called 'dinkies' - double income, no kids households - have also been hit hard.

Their joint income has fallen by more than three per cent since 1997, the equivalent of more than £100 off their monthly pay packet.

The rising tax burden under Labour is becoming a serious threat to Britain's competitiveness, according to business leaders and economists.

Last month, it emerged Britain is slipping down the international competitiveness league - now in 10th place in the World Economic Forum's survey of 125 countries, compared to fourth when Labour came to power.

According to the forum's report, the UK's public finances have slumped to 90th in world rankings, down from 78th place.